Sylvia Ho is joined by property manager Sean from the east end of Toronto. Sean talks about how the power of equity from properties he owns has funded some wonderful things in his life. He has valuable advice about what to look for when buying new construction properties and why equity has changed his life. 

Sean and Sylvia talk about Sylvia’s recent flood issue in one of her properties and Sean then explains some very important things to look for in investment properties, especially when buying new construction projects. Everything from where the main hot water pipes are located in the building and where the elbow in the kitchen drainage pipe is, to cleanout access point locations. Sean learns this information by asking for the mechanical drawings.

The advice that Sean has about not just inspecting the view, but why you need to consider pipe locations as well as where the unit is compared to amenities access, is invaluable. Sylvia soaks up the information and then talks with Sean about what the power of equity looks like in his life. Find out the amazing things Sean has been able to accomplish and afford through the power of equity. It’s an inspirational episode for anyone considering an investment property or two.

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Sylvia Ho | Mortgage Edge Agent 1 | LIC #10680 FSCO# M08003923: schedule a call | facebook | linkedin | youtube | instagram

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Transcript

Sylvia Ho: [00:00:05] Hey, friends, have you ever wondered how you could pay off your mortgage faster? Or maybe you like to help your kids get into the real estate market. Or better yet, retire with some passive income. Well, you're in the right place. Welcome to the Sylvia Ho Mortgage Podcast. My name is Sylvia. I'm here to teach you how to achieve your goals simply by owning just one more property. Hey friends, Sylvia Ho Mortgage Podcast. So today we are joined by Sean. He talks about how by having equity, by having properties, you are able to do things that you typically wouldn't do. So he was able to have his dream wedding with his lovely wife and 200 guests in the middle of New York for a whole weekend. So for him, that was a power of equity. If he didn't own property, he would not have been able to have his dream wedding. The second thing Sean talks about is things to look out for when buying a new construction property. As an investor myself that's bought new construction properties, the insight that Sean gives us is immensely helpful. So listen in and let me know if you have any questions. Thanks so much.

Sylvia Ho: [00:01:19] We have Sean here. He is a property manager for actually one of my units that had a huge flood in it. And he was just so nice in helping me navigate this whole what to do when there's water in your unit. And then we got started to talk about, you know, what to look out for for our condo units when you buy them new construction. Sean is a property manager. He's been a property manager, as you said, six years now.

Sean: [00:01:48] Yeah, a little over six years.

Sylvia Ho: [00:01:49] So he's a property manager a little over six years. And he's just going to give us a bit of insight of like, what's been going on after you take possession of a condo unit. So talk to me a little bit more like if someone's buying a new construction property, when we were chatting, you gave this one really, really great advice. I'm like, Oh my gosh, I never thought about that.

Sean: [00:02:09] So here's the management perspective and how it's helped me personally in my own investing. I spent probably four of the last six years dealing with new condominium development with my full time employer, and new properties are kind of a different beast. One thing if you're buying resale in a building that's been around for ten years, it's a completely different scenario if you're buying from a developer or if you're buying an assignment from somebody who just had a set of drawings. And so there's the whole tarry on warranty process that you have to work through. And I would say my perspective as a manager is the average consumer doesn't really understand what they bought. I always tell people a condominium has two things it's units and common elements. So you own your unit, the stuff inside the walls that you're fully responsible for. So even though I'm the property manager, I'm the condominium manager, I'm not responsible for your dishwasher. Right. And so that's a tough message to give to people sometimes when when things break and this is a bit of an indictment on the industry, I would say as a builder - and I'm not one, so don't, I can't speak to this and tell you - this is what I see is you cannot get cheap on the physical construction of the building. Like the steel has to hold up the building. The concrete has to be the concrete. And as the builders gets through the project, then they start trying to save money on things like finishes and fixtures and appliances and stuff like that. So I would always tell a new buyer like, understand when you're buying from a set of drawings and they tell you all about these great European appliances and things like that, expect that they're going to break down in the first couple of years and your warranty's only good for the first year on that. Right? So make sure you have some contingency for those sorts of things. Windows will leak, floorboards will shift and those sorts of things. And typically the builder might have one or two contractor people left after they've given you the keys on the project. And the average high rise in Toronto is three, four hundred, five hundred unit mega-project these days. And you've got one or two people who are here to listen to the concerns of 1000 people. So things don't always happen quickly, and particularly if it's a warranty issue, right? So as the property manager, I represent the condominium corporation. What does that mean? Well, every condo in Ontario gets assigned a number, right? So that number gets done by the land registry office after the builder has sold 50% plus one unit. So when all the units have been handed over or the majority of the units have been handed over, that's when you get into electing a condo board of your fellow owners. And that corporation is a separate entity from the builder. So it gets kind of cloudy in the first couple of years for a buyer of a new property. They look at me as the condominium manager and they go, Well, this is the you problem or this is your fault. And it's like we have to make that distinction between what's the condo's responsibility and what's still the builder's responsibility under the warranty. That gets confusing even for, even for property managers. So that can be confusing sometimes.

Sylvia Ho: [00:05:43] So basically what you're trying to tell me is that as a, I bought new construction properties, I bought four new construction properties myself. So what you're telling me is that, hey, Sylvia, understand the differentiation between what you're buying and what you're responsible for and what the building, the condo, is responsible for and what the builder is responsible for.

Sean: [00:06:07] Exactly.

Sylvia Ho: [00:06:07] They're three different things. It's not all one thing.

Sean: [00:06:12] Right. That's precisely what I'm saying.

Sylvia Ho: [00:06:14] So I learned that the hard way when there was a flood in my unit and I was responsible for the floor because I'm like, Oh, I thought that the floor, because it got flooded, it was part of the condo corp. But that's okay. You explained it to me. You said no, Sylvia, you're responsible for the floor. So we know water is our worst enemy. So one thing you told me was that, Hey, Sylvia, when I go buy new construction properties, I don't look necessarily at the view. I look at what was that called, the...

Sean: [00:06:44] The mechanical drawings. Yeah.

Sylvia Ho: [00:06:47] The mechanical drawings. So they gave you the copy of mechanical drawings?

Sean: [00:06:50] Well, I insisted. The most recent purchase I did was just about three years ago. And this isn't an indictment on the real estate industry, but everybody wants to sell you, like, here's the great water view or something like that. And my strategy going in is this is an investment property. So in as much as I appreciate a good view, I'm not living in it. So I need to be more clinical in my approach here. And so my first question to the sales agent for the builder is I would like to see the mechanical drawings. And she looked at my agent kind of kind of funny and my agent responded to to the seller's agent and said, he's a licensed manager, he knows what he's doing. So can you get the drawings? And what I was looking for is a unit on a floor that doesn't have any pipes running overhead. Because the average person is not an engineer, right? You're a consumer, you're buying a piece of property. And if you're buying in a multi unit facility, what we don't realize is when you turn on the hot water, that water is coming from the roof of the building. And depending on the size of the building, there are series of pumps and motors and that water is in constant motion. And the reason why they do that is if you live on the second floor and that water's got to come from 30 floors above, we want to make sure that it's still hot. It's in constant motion. So some of those pipes run laterally. You see a 30 unit building, but it might actually be like three sections put together from a from a mechanical engineering standpoint. So somewhere in the first half of the building or the first third of the building, there's going to be pipes running laterally through somebody's ceiling that go back up to the roof to recirculate.

Sylvia Ho: [00:08:43] Don't buy that unit, you're saying?

Sean: [00:08:44] I'm saying don't buy that one because...

Sylvia Ho: [00:08:47] You buy the one right above it or maybe two above that?

Sean: [00:08:50] I look for hot water systems. I also look for kitchen drains. And, because people will pour grease down sinks and drains will get clogged and they tend to get clogged wherever there's an elbow in the system that bends at 90 degrees. So we call those offsets in the plumbing world. Whatever your neighbor above you is put down the sink, if one of these offsets gets clogged up, it's coming back through your sink. And there could be ten other suites on top of you that are all connected to the same pipe. So you never want to be in the bottom of a zone.

Sylvia Ho: [00:09:28] Okay. So let me recap. So you just told me, do not be below one of those main pipes that service the whole building, be couple of floors above it. And then another thing is where the sinks drain out, the water drains out of the building, don't be near those elbows.

Sean: [00:09:49] Don't be near the elbows.

Sylvia Ho: [00:09:50] They get clogged up pretty quickly, easily, you probably see that a lot in your everyday life at the building. All right. So water pipes and sink drain out pipes. And then I think there was another one. Oh, don't be at the ceiling where the big water tank is.

Sean: [00:10:09] Those are pretty safe.

Sylvia Ho: [00:10:11] These are pretty safe. Okay.

Sean: [00:10:12] In modern construction these days. Yeah, that's, I kind of get on a tangent.

Sylvia Ho: [00:10:19] That's pretty safe.

Sean: [00:10:20] That's pretty safe. But because all of these mechanical systems tend to be at the top of the building, and everybody likes the nice view, we always sell these penthouse suites at the top of the building, and then they come and complain to me when they hear noise from the air conditioning, the chiller system, or some other pump or motor or something like that. So sometimes that is a design flaw. And again, it goes back to the builder and sometimes it's just an overly sensitive resident because we got to refer to the Ontario building code that says, Yeah, that noise is less than 30 decibels. So you need to hear that air conditioning for the summer. Get used to it. You know, there's a bunch of case law out there where people who don't get used to it, they sued their condo building and have forced them to put additional insulation and things like that in ceiling. So I always say you never want to be at the top of the zone. Because there's probably something in the ceiling you won't like. And you never want to be in the bottom, because whatever people are pouring down the drains can come back through your sink. The other thing too, is even if you don't have - and water is the biggest issue in any high rise structure, speaking from personal experience.

Sylvia Ho: [00:11:40] Yeah. Yeah.

Sean: [00:11:41] This is why we know each other is you've had a couple of water losses in this specific property. Anyways, where I was going, you don't want to be at the top. You don't want to be at the bottom. You particularly don't want to be at the bottom for the risk of backups. But the other thing is from a maintenance standpoint, managers, we talk about these access points where we need to clean things out. So if you think of a pipe just like your like your arteries, they will get clogged up over time. So we need to, we need to go into that pipe. And so it tends to be suites at the bottom of the zone that have those access points where the plumber can go in and clean up. So that's just one more reason we would have to go into your unit. And oftentimes what people put down the drain, and if it's fermented for a while, you can imagine the odor that comes out of these pipes. And so it's not harmful, but it's a nuisance.

Sylvia Ho: [00:12:37] So back up for 2 seconds. So when plumber is cleaning up the major pipes, the major arteries in this building, they have to go into someone's unit to do that?

Sean: [00:12:45] It depends on the design of the builder and the engineer.

Sylvia Ho: [00:12:48] Stay away from those designs. You're saying that's why you wanted to look at these plans, right?

Sean: [00:12:53] That's why I wanted to look at these and say, Hey, there's no cleanout in my unit. There's no copper piping with with hot water system running through my ceilings. There's no elbows near my kitchen because, yeah, I just don't want to have that hassle. So there's a sweet spot somewhere in the middle. Those are the units that I look for when I'm buying new construction.

Sylvia Ho: [00:13:17] When you're buying new construction. Now, there was another piece of advice that you gave is that, hey, don't be near the garbage chute because it could be noisy or don't be near like the elevators or, like, I guess the party room or...

Sean: [00:13:31] You know, people love the amenities. And again, you get sold the view and somebody goes, Oh, great, I want to, I'm overlooking the pool deck and stuff like that. And that's wonderful until you realize that June, July, a lot of these newer projects have outdoor pools. There's a barbecue, there's lounge space, there's the pool, there's the hot tub. And typically condo boards leave those things open until ten or 11:00 at night. And particularly on weekends, younger folks are going to have some kind of party going on or something like that. You don't want the balcony that's overlooking the pool deck if you're a light sleeper. Right? If that's not your gig, then just recognize that, hey, I'm in a building with 4, 5, 600 other people. They don't have my schedule. They don't necessarily have my level of consideration. So, yeah, you're going to, if you're buying one of those units, be prepared to call the concierge because you're going to need to break up the party or something like that if you want to sleep. I'm going to say architects and builders are getting better at trying to put amenities away from living space, but nothing's 100% perfect. That's an example of the pool. I can tell you in just about any building now, they have a gym, right? So somebody's going to complain if weights are getting dropped, right? If you live beneath the gym or if you live next to the gym. So keep those things in mind as well, too, and you're going to be on a floor where the other 500 people in the building are going to come through to access that amenity. Do you want to be in a high traffic area? You're going to hear more footfall. You're going to hear people having conversations in the hallway. So if you're a light sleeper or if you just haven't lived in with a lot of people before, these are things to keep in mind before you sign up for that unit on that particular floor.

Sylvia Ho: [00:15:28] Sounds like you may have found yourself like a side gig helping individuals purchase new construction properties by looking at the drawings.

Sean: [00:15:38] Yeah!

Sylvia Ho: [00:15:39] It sounds like that might be like a side gig for you or something that you should look into, because...

Sean: [00:15:44] I know.

Sylvia Ho: [00:15:45] You would be quite popular.

Sean: [00:15:46] This is, this is great. This is great advice for for me. I thought I was giving advice to you and your listeners. But yeah, there's always an opportunity there. And at the end of the day, we're all human, so we get excited. And a condo is a big purchase for the average consumer. And so I always try to tell people, you need to temper your excitement and look at the drawings, understand the rules around what you bought and what's warranted, and what you're responsible for. We'll go back to your recent water loss.

Sylvia Ho: [00:16:24] Exactly.

Sean: [00:16:25] That's about every, just about every building that's been built in the last ten years has what's called a standard unit definition. And a lot of buildings that are older have what's called a standard unit bylaw. And why do they do that? Well, for all the reasons we've talked about water loss, condo corporations were realizing, hey, I'm on the hook to replace somebody's floor or their cabinets. And so there are all these things that after you buy that unit, if there's damage to it, typically the condo corporation is not responsible for it. So people sometimes kind of gloss over that, they're sitting down with their lawyer, they're sitting down with their mortgage banker and going, where do I sign? And then fast forward, you have a loss and all of a sudden you realize that your special hardwood flooring is not covered. Or you got an upgrade to the cabinets and there's been some damage. So that becomes an insurance claim on your personal insurance. I've seen situations where, particularly investors, where the lease clearly says the defendant should get their own insurance, contents aren't covered. I get to be the bearer of bad news sometimes and try to find a nice way to say, well, that's a you problem.

Sylvia Ho: [00:17:49] Let me explain to our listeners what you're talking about. So basically I told my tenants have to get tenant insurance to cover their own belongings. Right? And what had happened was there was a flood in my unit and the insurance that my tenant got was a cheaper insurance and it didn't cover certain things. I had to be the bearer of bad news. My tenant was like, Well, your insurance should have been covering this. I'm going to have another podcast where an insurance individual will come in. But we go back to where you're talking about, the advice that you're giving to people who want to purchase new construction properties, so that is really, really, really good advice. I absolutely love it. I think, like I said, I think you're going to find a side gig here making some extra cash. But let's talk a little bit more about you as a real estate investor. You're a real estate investor yourself, so talk to me a little bit more how you got into real estate investing.

Sean: [00:18:43] I got into real estate investing by accident, as many investors do. And so this is going back about 20 years now. I'm dating myself. Bought a little condo in downtown Toronto, and then I had an opportunity to go work in the US for a while. And as my first purchase, I did what everybody does and gets the five year fixed. And at the time interest rates were around 7% or something like that. And so I thought, Oh, I might, I might end up selling this place. And when my branch manager at the bank explained to me the whole thing about interest differential and what I would be, what I would be on the hook for if I actually sold my unit, I kind of said, Well, I'm not going to give the bank another 7 or 8000 bucks for the penalty to break to break this mortgage. And so I ended up holding on to that property. At the time, I think I was renting it for probably 2 even maybe even $300 less than what my expenses were. So I was cash flow negative. It wasn't the end of the world because I was working in the US.

Sylvia Ho: [00:19:53] US dollars anyways, right?

Sean: [00:19:55] Great salary and the exchange rate. So actually I could I could easily cover the difference. Plus I was making prepayments on the mortgage. Fast forward a few years, mortgage had come up for renewal, and I asked the bank - I'm trying to remember the story now - I asked the bank if I could get a better rate because I was one of those where I don't shop around, I don't deal with brokers, no offense to you, Sylvia, and what you do.

Sylvia Ho: [00:20:22] No offense but now you're going to talk to me, right?

Sean: [00:20:26] Definitely. I was just one of those like, well, this is the bank where I've always banked and they extended me financing. So they send you out that renewal notice four months in advance and I would just sign the paperwork and go from there. So I actually asked the branch manager, I said, Is there something we can do about the interest rate? And the branch manager said, Well, I can't do anything for you on the interest rate, but we can rewrite a new mortgage for if you want to pull some of the equity. And I didn't quite understand it at the time, but as we're going through the numbers, my payments on that property came down, my monthly payments came down because we stretched out the amortization, and he said, we have to rewrite so he says, What do you want, like ten grand or something like that? I said, okay, I'll take ten grand. And the light bulb went off for me. It was like...

Sylvia Ho: [00:21:23] What do I do with this ten grand.

Sean: [00:21:24] The term, the paradigm shift. I was like, Wait a minute. So my payments went down. I still own the property and they just put ten grand in my bank account all at the same time when I did this refinancing, that's when I realized the power of real estate. And by the way, that property that I had purchased for $152,000 back in the day is now worth close to $700, right? So after you go through that, all of a sudden now you start to understand the power of equity and what you can do with that. So I took that ten grand. I think I, I had a small car payment at the time, so I paid off the car loan with that ten grand. So all of a sudden my cash flow improved, not just on my investment property, but now I'm not paying for my car note anymore. And I still had money left over to put in my TFSA. It was a win-win-win on on all sides. And then after that experience, it's like, okay, wash, rinse and repeat, right? Every three or four years, let's see, let's see what properties are worth. And yeah, and so that's kind of how I...

Sylvia Ho: [00:22:34] That's how you fell into the estate investing, right?

Sean: [00:22:37] I fell into real estate investing because I didn't want to pay that penalty to break a mortgage.

Sylvia Ho: [00:22:41] So I like how you said wash, rinse and repeat. So what I teach my clients is BRRR method, but I added H to it. So that's Buy, Renovate, Rent out, Refinance, Repeat. So buy it again. And then I add in the letter H, which is hold, Hold long term. Because you can see how your property went from $152,000 to $700.

Sean: [00:23:07] Downtown Toronto. We've had a good run. I call that the goose that laid the golden egg, because every time I need to do something now, now that I understand how the whole process works, it's like, this is great. I have a tenant and it's in a great location, this property, this particular property is in a great location, so I've never had to worry about it being vacant. The only time I had it vacant was when I took it off the market deliberately to do some renovations and upgrades inside the unit. And then you reappraise, it's worth more, and the bank's willing to extend you more credit to go buy more property.

Sylvia Ho: [00:23:44] Exactly. The whole BRRR method. Right? I'm just gonna ask you one last question before we end off. What's one piece of advice you would give to your younger self?

Sean: [00:23:55] Start now. Buy now. I follow these headlines right now and everybody's squawking about the Bank of Canada raising rates. And I'm not, I'm not saying that it's necessarily easy, but I'm also looking at it long term. And I'm saying the prime minister said the government wants to let in a half billion people in the next year or two. And we can't put enough - I say we, the building industry - can't put enough housing inventory in the marketplace. So all of these new Canadians are going to end up in Toronto, Vancouver, and to a lesser extent Calgary and Montreal. So I just say the demand for housing is going to continue to outstrip the supply for housing. So even though pricing is down temporarily or whatever, do it now. Buy, because you will not regret in the next five or ten years. Don't follow the headlines about where interest rates are going. And again, I look back at that first point, it made sense to buy a property when it rates were at 7%. The rates on the properties that I have now, I'm paying 3% or I've got one coming up for another, that's going to hurt because I'm paying 1.75 so I'm not going to get that when I go to renew. But it still makes financial sense.

Sylvia Ho: [00:25:16] It still makes financial sense. Looking at the bigger picture of things, right? Mortgages are like little small chunks, right? But the bigger picture is the equity, the growth of holding it long term. Right? Every investment, just like real estate or financial investment, it's going to have their ups and downs. But with real estate, it's a constant, Yes, this thing is, this property is an asset that's going to keep on growing and growing and growing in value. And it's all about pulling out the equity. I love what you said, the power of equity. I love that line.

Sean: [00:25:52] Yeah. It's amazing. I'll, I know you want to wrap, but I'll tell you another story. I recently got married and my wife and I, she's an American, and so we we did a civil ceremony here in Toronto, and then we had a big wedding because we wanted to get the paperwork underway because she's going to move to Toronto from New York. Then we did a bigger wedding later on outside of New York. And weddings are not cheap, but it's nice when you have a home equity line of credit. You can throw the wedding that you want. So again, the power of equity is you can do things when you have these assets behind you, that, so I wasn't, we made a wedding weekend. So we had a rehearsal dinner and we had people in on Friday night. We did a big ceremony on Saturday. We did a wonderful brunch on Sunday and people had a wonderful weekend. If I didn't own real estate, I wouldn't be able to host that kind of event for 200 people. The power of equity is, yeah, I can tell you about how I paid off a car loan or how I put money in a TFSA, but when you build your portfolio to a certain point, you start doing things that are more memorable and you have the resources to do it. And as much as I like my day job, that's not getting me there. It's my assets and my investments that are getting me there to where I want to be. Right? And share those experiences with my friends, with my family. Yeah, that's the power of equity.

Sylvia Ho: [00:27:35] Is about enjoying life. Life is too short, right, Sean, it's about enjoying life and having that property is allowing you to have these experiences that are, these memories of you and your new wife and together and starting up a family and celebrating with 200 wonderful individuals.

Sean: [00:27:54] Yeah.

Sylvia Ho: [00:27:55] Part of equity. How beautiful is that? Thank you so much, Sean. I really, really appreciate you being on the podcast. This information that you're sharing today will be invaluable to my listeners. They'll now know, okay, these are the things that I have to look out for, for new construction property and what the power of equity was able to do for you and your family and to build these beautiful family memories.

Sylvia Ho: [00:28:18] Hey, guys. We just heard from Sean. Oh, my goodness, he gave such great advice. I know I learned a lot. I hope you guys learned a lot. The biggest advice that he wanted to give everyone is the power of equity. And to buy now. To buy now, don't wait. And his advice to his younger self is to buy today. All right. Talk to you later. Bye now. Hey friends, thanks so much for listening to the Sylvia Ho Mortgage podcast. We'll catch you on the next episode. You want to learn more about the J.O.M.P. Program, please connect with me at SylviaHo.ca. Love to hear from you. All it takes is 15 minutes for us to chat to see if this will work for you. Thanks, guys.